Thursday, December 20, 2007

Incentives Count, Even For the FBI?

"For two decades, the federal government has pursued, prosecuted and sentenced cocaine offenders in a way that borders on insanity--targeting petty criminals over serious drug dealers and, in doing so, undermining its own mission. ... On its face, the debate was about how much deference must be paid to the [sentencing] guidelines. But is was also about whether the guidelines made sense: they subjected a defendent caught with 50 grams of crack to the same penalty as one with 5,000 grams of powder, even though crack is just adulterated powder cocaine. ... The result has been a tragic playing out of the law of unintended consequences. Instead of focusing on drug lords, federal efforts have been mostly directed at pawns. ... The message is simple: it's not just that the 'get tough' policies of the 1980s don't work; they actually do harm by, among other things, undermining faith in the fairmess and efficiency of the justice system itself. The Supreme Court has finally noticed that. Congress should, too", Ellis Close, at Newsweek, 24 December.

The sentencing guidelines gave federal law enforcement officials an incentive to get lots of "easy" prosecutions of nobodys as opposed to fewer drug kingpin prosecutions. This seems to be how federal law enforcement works. I expect to see many loan brokers prosecuted for mortgage fraud; I will be surprised to see any financial institution executives which sold: CDOs, CPDOs or bank executives who thought their SIVs need not even be disclosed when they had "liquidity puts" prosecuted. "Round up the usual suspects" said Captain Renault in "Casablanca", 1942.

Governments seem to work this way. In Stalin's USSR, a screw making factory was given a screw quota. Result: billions of tiny screws as opposed to various size screws the USSR needed. The Gosplan geniuses had a new idea: give the factory a ton screw quota. Result: a small number of gigantic screws as it was easier to make large screws by the ton instead of small ones. Moral of the story: incentives count.


Tom Stone said...

I have twice had my commissions cut by bosses who told me I made "Too Much Money".In both cases I had an incentive to find different employment,and did...This is not an unusual experience for anyone working on a straight commission.

Independent Accountant said...

Ross Perot (RP) was supposedly the best salesman IBM ever head. He left IBM after finishing his year's sales quota by, I believe, January 21st of the year. RP was supposedly told take the rest of the year off. He left IBM and set up EDS. The rest is history. IBM was shown to have been stupid in not accomodating RP. You too seem to have worked for fools.